November 19, 2008

Department of Duh Volume II: Builder Confidence Not So Good

The National Association of Home Builders released their Builder Confidence Index yesterday and, not surprisingly, it doesn't look good:

Builder confidence in the market for newly built single-family homes plunged in November as worsening problems in the financial markets, job market weakness and overwhelming uncertainty about the economy continued to negatively impact consumer behavior, according to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today. The HMI sank five points to 9, the lowest level recorded since the series was created in January of 1985.

Builders are between a rock and a hard place. Put new projects in the ground and they're more likely to lose money than make it. Do nothing and you've got zero cash flow, which ain't good if you want to keep the lights on at the office.

Locally, builders should be applauded for pulling back on creating new housing supply, as the market doesn't really need more homes for sale at this juncture. The number of new construction properties for sale in the Twin Cities MLS was at 3,546 at the start of November—down a healthy 27.4 percent from last November according to our Housing Supply Outlook report.

And there's certainly not a deluge of new builder supply coming up on the horizon, the Builder Association of the Twin Cities has been telling us. According to their numbers, 2008 new construction permit activity is down 69.4 percent from the peak year of 2004. Year to date, only 4,754 unit permits have been issued in the region. In 2004, there were 15,561 issued by this point in the year.

We can thank them for their efforts in reducing our housing supply, but something tells me a thank you is cold comfort at this point. Builders are in the business of building. Here's to hoping they can weather the downturn for as long as lasts and come back strong when demand perks up once again.